Entering late March, Zhongliang Holdings (02772.HK) issued two major announcements in succession. One was the completion of debt restructuring, and the other was the release of the annual results for the past year.

Looking at the capital market, it seems that there was no reaction to these two announcements. It can be seen that the market underestimated the significance of these two major events to the company to a certain extent.

There may also be an opportunity behind this, so we might as well discuss this.

1. Complete debt restructuring. The boat has already passed 10,000 mountains

Prior to the publication of the annual report, Zhongliang Holdings issued an announcement announcing that all the conditions for the overseas debt restructuring had been met and officially took effect on March 20.

This news means that Zhongliang Holdings has successfully resolved the foreign debt pressure it faced, paving the way for the company's future development.

As another housing enterprise that successfully achieved debt restructuring after Sunac, Zhongliang Holdings has demonstrated remarkable crisis response capabilities and strong strength among many insured housing enterprises.

From the first US dollar debt default in July 2022, to the formal introduction of a debt restructuring plan in November of that year, to now all the pressure on foreign debt has been resolved. The entire process took about 16 months for Liang Holdings. Compared to Sunac, which took 18 months, Zhongliang's process was shorter, which also highlighted its quick action, strong execution, and high efficiency.

You need to know that debt restructuring is not an easy task. Zhongliang Holdings must comprehensively consider the interests of all parties and carry out multi-level communication and even compromise before finally reaching a debt restructuring agreement. As a result, it is already quite difficult for Zhongliang Holdings to quickly and successfully complete debt restructuring.

Despite a series of complicated environments before, Zhongliang Holdings, like many other insured housing companies, inevitably faced a crisis. However, now the company has taken the lead and successfully broken the game, which also gave it a rare first-mover advantage in the new industry cycle.

In other words, after getting rid of the heavy burden of past debt, the company will also be able to respond more calmly to market changes, seize opportunities, actively expand business, improve product quality and service levels, and accelerate growth, thus continuing to consolidate its leading position in the industry.

It is worth mentioning that as housing enterprises continue to be supported at the policy level to improve financing, Zhongliang continued to receive financial support until now. About 20 projects were shortlisted in the first batch of “white lists”, involving 12 cities including Qingdao and Chongqing. This also reflects that the company has received recognition and support at the government level, which is expected to further help the company relieve debt pressure and stimulate sales elimination, thereby achieving a healthy hematopoietic cycle.

Looking ahead to 2024, Zhongliang Holdings said that the Group will continue to emphasize financial security, maintain operating liquidity, stabilize debt, control risk, smooth delivery, save costs, strengthen the organizational structure and improve management efficiency to ensure that the Group can manage industry challenges and overcome industry difficulties.

2. The announcement of results digested pessimistic expectations, and the industry welcomed the arrival of an inflection point

Following the announcement of the completion of the debt restructuring, Zhongliang Holdings announced its 2023 annual results report. Although judging from a performance perspective, it still shows clear operating pressure.

The scale of sales has declined, and loss pressure still exists, but there is no shortage of highlights such as a sharp increase in revenue and a sharp drop in interest-bearing debt.

Specifically, in terms of sales, despite a year-on-year decrease of about 48% to RMB 34.13 billion, Zhongliang Holdings is still in the top 40 in the industry, ranking 12th among private housing enterprises. This shows that the company's position and influence in the market is still very prominent.

In terms of delivery capacity, Zhongliang Holdings delivered 108,000 properties in 2023, ranking 11th in the industry. With its commitment to quality, the company also won many industry awards. Previously, it has successively received honors such as “2023 China Real Estate Delivery Performance Benchmark Enterprise of the Year” and “2023 Quality Delivery Real Estate Enterprise”. This fully reflects the company's outstanding performance and good reputation in delivering real estate projects.

Furthermore, in terms of interest-bearing liabilities and cash conditions, financial reports show that by the end of 2023, Zhongliang Holdings' interest-bearing debt had fallen to a record low of 21.2 billion yuan, of which domestic interest-bearing debt was 12.82 billion yuan and overseas was 8.35 billion yuan. At the same time, the company had 10.66 billion cash and bank balances as of the end of the year. Combined with the successful restructuring of the company's debt, it fully demonstrates that the company has achieved remarkable results in debt management and capital raising, and has maintained good cash flow management capabilities.

Through these highlights, it can be seen that Zhongliang Holdings still maintains strong resilience and market competitiveness in the industry. Meanwhile, the release of this financial report further unleashed previous pessimistic expectations about the company's performance and operating prospects, which helped to heat up investors' confidence.

Currently, as the policy environment continues to support the steady development of the real estate industry from the supply and demand side, market expectations are also constantly being strengthened. With the company's good business base, Zhongliang Holdings is also expected to seize new opportunities in the new industry cycle.

3. Conclusion

Judging from Zhongliang Holdings' recent relatively lackluster performance in the capital market, behind the market's failure to actually respond, the company may have a triple difference in expectations.

First, there is the lack of policy implementation expectations for industry reversal.

Currently, it is undeniable that, whether in the capital market or the entire property market, investors and buyers still have a strong wait-and-see attitude. This also reflects that the market may have uncertainty about the speed and effects of implementation of policies, which has led to a certain difference in expectations.

However, it is hard to expect that with the continuous introduction and implementation of a series of favorable policies to support the steady and healthy development of real estate, the market's expectations for the real estate industry will also usher in new changes, helping the industry usher in a reversal.

Second, the company's performance failed to deliver on expectations for steady growth. From a performance perspective, although Zhongliang Holdings has faced great pressure in the past, as a series of debt pressures ease, the company is expected to regain its growth potential after going light, and is expected to achieve steady growth in subsequent performance.

Finally, market sentiment got out of the bottom of expectations. After a long period of industry adjustments, lack of investor confidence has reached a freezing point, and the industry is already at the bottom of valuation. Now, with policy interviews unleashing benefits, corporate performance and debt levels are also improving. Once verified at the management level and opening up the hematopoietic cycle of housing enterprises, a reversal in market confidence will also be a probable event, and this poor expectation will also indicate a major market opportunity in a market.

From a valuation perspective, Zhongliang Holdings' current net market ratio is only 0.1 times, which is far below the industry average of 0.4 times. As the market's perception of the company gradually increases, and its performance prospects and steady management ability continue to be verified, it is only a matter of time before the company's value returns.